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MasterCard sued over Net billing methods

Internet payment firm Paycom says the credit card issuer committed fraud when processing merchants' online transactions.

Internet payment firm Paycom Billing Services has filed a lawsuit against MasterCard, alleging the credit card issuer committed fraud when processing merchants' online transactions.

Paycom, which filed its suit in U.S. District Court in Los Angeles on Monday, said MasterCard used its "monopolistic...power to illegally impose fines and penalties in the millions of dollars" when processing merchants' online sales. Paycom is seeking more than $23 million in damages.

Paycom's lawsuit comes on the heels of a $1 billion settlement MasterCard reached earlier this month with Wal-Mart and Sears, Roebuck over allegations the credit card giant added excessive fees to debit card transactions.

"We understand we're not a brick-and-mortar merchant, and we understand online payments are a different type of transaction than one in person," said Chris Mallick, Paycom's chief executive. "But what we don't understand is the charge backs to Paycom."

In the lawsuit, Paycom said MasterCard charges Internet merchants transaction fees much higher than those charged to traditional retailers, where customers pay with cash or checks.

"MasterCard attempts to justify this difference by arguing that Internet merchants like Paycom are more prone to fraud, but as the District Court established in USA vs. Visa, this explanation is belied by the fact that Paycom and other Internet merchants...bear virtually all risk of loss from fraudulent transactions," the suit stated.

MasterCard said that the suit is without merit and the company's rules are meant to "protect merchants by requiring that the (customer) promptly pay its merchant for all MasterCard transactions and by affording certain protections against bogus cardholder complaints."

Meanwhile, Paycom has received inquiries from more than 24 online merchants and attorneys about filing their own lawsuits or joining Paycom for a class-action suit.